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PRAIRIE CROSSING CHARTER SCHOOLAND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

YEARS ENDED JUNE 30, 2016 AND 2015

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYTABLE OF CONTENTS


INDEPENDENT AUDITORS’ REPORT 1

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 3

CONSOLIDATED STATEMENTS OF ACTIVITIES 4

CONSOLIDATED STATEMENTS OF CASH FLOWS 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6

SUPPLEMENTARY INFORMATION

CONSOLIDATING SCHEDULE OF FINANCIAL POSITION 17

CONSOLIDATING SCHEDULE OF ACTIVITIES 19

CONSOLIDATING SCHEDULE OF FUNCTIONAL EXPENSES 20

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INDEPENDENT AUDITORS’ REPORT

Board of DirectorsPrairie Crossing Charter School and its SubsidiaryGrayslake, Illinois

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Prairie Crossing Charter School and its Subsidiary, which comprise the consolidated statements of financial position as ofJune 30, 2016 and 2015, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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INDEPENDENT AUDITORS' REPORT

To the Stockholders Innovative Control Systems, Inc. Franklin, Wisconsin Report on the Financial Statements We have audited the accompanying financial statements of Innovative Control Systems, Inc., which comprise the balance sheet as of December 31, 2012, and the related statements of income, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

CliftonLarsonAllen LLPwww.cliftonlarsonallen.com

An independent member of Nexia International

An independent member of Nexia International

CliftonLarsonAllen LLP 222 Main Street, Suite 104, PO Box 1347 Racine, WI 53401-1347

262-637-9351 | fax 262-637-0734

www.cliftonlarsonallen.com

Board of DirectorsPrairie Crossing Charter School and its Subsidiary

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Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Prairie Crossing Charter School and its Subsidiary as of June 30, 2016 and 2015, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating supplementary schedules are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

CliftonLarsonAllen LLP

Racine, WisconsinOctober 18, 2016

Geis36220

Typewritten Text

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PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATED STATEMENTS OF FINANCIAL POSITION

JUNE 30, 2016 AND 2015

See accompanying Notes to Consolidated Financial Statements.

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2016 2015ASSETS

CURRENT ASSETSCash and Cash Equivalents 1,389,293$ 1,340,631$ Cash Restricted to Investment in Property 5,946 5,951 Grants Receivable 77,390 59,566 Charter Renewal Fees 22,246 29,661 Prepaid Assets 4,916 8,258

Total Current Assets 1,499,791 1,444,067

DEPOSIT REQUIRED BY LOAN AGREEMENT 306,696 306,696

PROPERTY AND EQUIPMENT, NET 8,553,595 8,693,969

BOND ISSUANCE COSTS, Net of Accumulated Amortization of $187,730 in 2016 and $161,178 in 2015 589,436 615,988

Total Assets 10,949,518$ 11,060,720$

LIABILITIES AND NET ASSETS

CURRENT LIABILITIESAccounts Payable 113,121$ 58,402$ Accrued Expenses and Other Liabilities 349,444 246,362 Current Maturities of Bond Payable 242,779 222,500 Current Maturities of Capital Lease Obligations 4,472 3,341 Unearned Revenue 35,115 43,320

Total Current Liabilities 744,931 573,925

LONG-TERM LIABILITIESInterest Rate Swap 25,420 128,149 Bond Payable, Less Current Maturities Above 7,778,471 8,021,250 Capital Lease Obligations, Less Current Maturities Above 18,890 -

Total Long-Term Liabilities 7,822,781 8,149,399

Total Liabilities 8,567,712 8,723,324

NET ASSETSUnrestricted 2,375,743 2,331,333 Temporarily Restricted 6,063 6,063

Total Net Assets 2,381,806 2,337,396

Total Liabilities and Net Assets 10,949,518$ 11,060,720$

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATED STATEMENTS OF ACTIVITIES



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Temporarily Temporarily

Unrestricted Restricted Total Unrestricted Restricted TotalREVENUES, GAINS, AND OTHER SUPPORT

General State Aid 4,352,771$ -$ 4,352,771$ 3,798,600$ -$ 3,798,600$ Contributions 25,368 2,265 27,633 25,276 2,532 27,808 Fundraising 8,683 - 8,683 9,103 - 9,103 Grants:

State Grants 134,212 - 134,212 110,953 - 110,953 Federal Special Education 117,217 - 117,217 86,719 - 86,719 Other 36,258 - 36,258 34,491 - 34,491

School and Program Fees 369,435 - 369,435 303,790 - 303,790 Rent Income 17,214 - 17,214 17,639 - 17,639 Interest Income 1,466 - 1,466 953 - 953

Unrealized Gain on Interest Rate Swap 102,729 - 102,729 94,038 - 94,038

Other Expense (100,190) - (100,190) (81,562) - (81,562) Total Revenues, Gains, and Other Support 5,065,163 2,265 5,067,428 4,400,000 2,532 4,402,532

Net Assets Released from Restrictions 2,265 (2,265) - 3,792 (3,792) - Total Unrestricted Revenues, Gains, and Other Support 5,067,428 - 5,067,428 4,403,792 (1,260) 4,402,532

EXPENSESProgram Services 4,016,531 - 4,016,531 3,551,841 - 3,551,841 Fundraising 19,220 - 19,220 13,472 - 13,472 Management and General 987,267 - 987,267 809,220 - 809,220

Total Expenses 5,023,018 - 5,023,018 4,374,533 - 4,374,533

CHANGE IN NET ASSETS 44,410 - 44,410 29,259 (1,260) 27,999

Net Assets - Beginning of Year 2,331,333 6,063 2,337,396 2,302,074 7,323 2,309,397

NET ASSETS - END OF YEAR 2,375,743$ 6,063$ 2,381,806$ 2,331,333$ 6,063$ 2,337,396$

2016 2015

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS



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2016 2015

CASH FLOWS FROM OPERATING ACTIVITIESChange in Net Assets 44,410$ 27,999$ Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities:

Depreciation and Amortization 378,988 353,107 Unrealized Gain on Interest Rate Swap (102,729) (94,038) Effects of Changes in Operating Assets and Liabilities:

Grants Receivable (17,824) (26,434) Other Receivable - 2,095 Prepaid Assets 3,342 (12,579) Accounts Payable 54,719 (62,017) Accrued Expenses and Other Liabilities 103,082 7,870 Unearned Revenue (8,205) (27,464)

Net Cash Provided by Operating Activities 455,783 168,539

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Property and Equipment (179,852) (141,202) Cash Restricted to Investment Property 5 -

Net Cash Used by Investing Activities (179,847) (141,202)

CASH FLOWS FROM FINANCING ACTIVITIESPayments on Capital Lease Obligations (4,774) (4,210) Payments on Bond Payable (222,500) (212,500)

Net Cash Used by Financing Activities (227,274) (216,710)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,662 (189,373)

Cash and Cash Equivalents - Beginning of Year 1,340,631 1,530,004

CASH AND CASH EQUIVALENTS - END OF YEAR 1,389,293$ 1,340,631$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest Paid 323,436$ 330,956$

NONCASH INVESTING AND FINANCING ACTIVITIESProperty and Equipment Acquired via Capital Lease 24,795$ -$

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016 AND 2015

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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Prairie Crossing Charter School (PCCS) was formed in July 1999 in the state of Illinois and focuses on the environment, conservation, and good citizenship and currently offers kindergarten through grade 8. For the 2015-2016 school year, the maximum enrollment was 419 students, of which one student was out of the district. For the 2014-2015 school year, the maximum enrollment was 392 students, of which two students were out of the district. PCCS is supported primarily by General State Aid from the state of Illinois, which reimburses PCCS a dollar amount per student per school year, and various grants from state, federal, and other agencies.

PCCS is subject to a “Charter Agreement” with the Illinois State Charter School Commission (ISCSC). The original agreement was for a term of five years and ended with the 2008-2009 school year. The agreement was renewed for an additional five years, ending with the 2013-2014 school year. On July 24, 2014, an agreement was renewed for an additional five years, ending with the 2018-2019 school year.

PCCS Holdings, LLC (Holdings) is an Illinois Limited Liability Company, with PCCS as a single member. Holdings was formed in June 2004 to own and develop PCCS property and lease it to PCCS. Construction for the first building was completed in December 2004, and construction for the second building was completed in August 2006.

Consolidation

The accompanying consolidated financial statements include the accounts of Prairie Crossing Charter School and its wholly-owned subsidiary, PCCS Holdings, LLC (collectively, the Organization). All significant intercompany items and transactions have been eliminated.

Significant accounting policies followed by the Organization are presented below.

Basis of Accounting

The Organization prepares its consolidated financial statements on the accrual basis of accounting. Accordingly, revenues are recognized when earned and expenses are recognized when obligations are incurred, regardless of the timing of the cash flows.

Consolidation

The accompanying consolidated financial statements include the accounts of Prairie Crossing Charter School and its wholly-owned subsidiary, PCCS Holdings, LLC (collectively, the Organization). All significant intercompany items and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues, expenditures, gains, losses, and other changes in net assets during the reporting period. Actual results could differ from those estimates.


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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial Instruments

The Organization’s financial instruments are cash and cash equivalents, accounts receivable, accounts payable, unearned revenue, accrued expenses, and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and unearned revenue approximate their fair values based on their short-term nature. The fair value of the Organization’s long-term debt is estimated based on the current rates offered to the Organization for debt of similar terms and maturities.

Cash Equivalents

The Organization considers all highly-liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. The Organization maintains its cash balances at regional banks.

Certificates of Deposit

Certificates of deposit are carried at cost which approximates fair value.

Receivables

Receivables are uncollateralized obligations which generally require payment within 30 days from the invoice date. Receivables are stated at the invoice amount.

Account balances with invoices over 90 days old are considered delinquent. Payments of receivables are applied to the specific invoices identified on the remittance advice or, if unspecified, to the earliest unpaid invoices.

The carrying amount of receivables is reduced by a valuation allowance that reflects management’s best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on management’s assessment of the collectibility of specific accounts and the aging of the receivables. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts. At June 30, 2016 and 2015, no amounts are considered uncollectible and accordingly, the Organization has not recorded an allowance for uncollectible amounts.

Property and Equipment

Property and equipment is stated at cost or, if donated, at the estimated fair market value as of the date of donation. Expenses for maintenance and repairs are charged to expense as incurred. Additions and replacements in excess of $2,500, including interest and issuance costs during the construction period, are capitalized. Depreciation is recorded on the straight-line method over the estimated useful lives of the various assets, which range from three to 39 years.


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Impairment of Long-Lived Assets

The Organization reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or the fair value less costs to sell.

Bond Issuance Costs

Costs incurred as a result of issuing tax-exempt bonds are amortized on a straight-line basis over the term of the related debt.

Accounting Policy for Derivative Financial Instruments

The Organization recognizes all of its derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Organization designates the hedging instrument as a fair value hedge.

For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in the current earnings during the period of the change in fair values.

Net Assets

Net assets are classified into one of three classes of net assets based on the existence or absence of donor-imposed restrictions. The following is a description of each class:

Unrestricted

Unrestricted net assets includes all net assets which are neither temporarily or permanently restricted. Gains or losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or law.

Temporarily Restricted

Temporarily restricted net assets includes contributed net assets for which donor imposed time and purpose restrictions have not been met and the ultimate purpose of the contribution is not permanently restricted.


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Net Assets (Continued)

Permanently Restricted

Permanently restricted net assets includes contributed net assets which require, by donor restriction, that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions.

Contributions

The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assetsand reported in the consolidated statements of activities as net assets released from restrictions.

The Organization reports gifts of property and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.

Other Income (Expense)

The Organization reports other income (expense) in the consolidated statements of activities as a component of revenues, gains, and other support. This includes the charter school commission fee established by the Illinois legislature in 2011 and various activities on a net basis including SCRIP, plant sale, holiday bazaar, and others.

Income Taxes

No provision or benefit for income taxes has been included in these consolidated financial statements since the Organization is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code.


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NOTE 2 PROPERTY AND EQUIPMENT

Property and equipment as of June 30, 2016 and 2015 are summarized as follows:

2016 2015

Land 976,852$ 976,852$ Land Improvements 224,097 224,097 Building Improvements 9,988,302 9,939,182 Furniture and Fixtures 348,476 209,998 Equipment 601,186 572,632 Software 49,820 49,820 Vehicle 34,800 34,800 Construction in Progress 5,857 36,863

Total Property and Equipment 12,229,390 12,044,244 Accumulated Depreciation (3,675,795) (3,350,275)

Property and Equipment, Net 8,553,595$ 8,693,969$

Depreciation expense for the years ended June 30, 2016 and 2015 was $345,021 and $319,140, respectively.

NOTE 3 BOND ISSUANCE COSTS

Amortization expense for bond issuance costs for the years ended June 30, 2016 and 2015was $26,552.

Future estimated amortization expense for bond issuance costs is as follows:

Year Ending June 30, Amount2017 26,552$ 2018 26,552 2019 26,552 2020 26,552 2021 26,552

Thereafter 456,676

Total 589,436$

NOTE 4 CAPITAL LEASE OBLIGATIONS

In March 2016, the Organization entered into a lease for office equipment with a cost of $24,795 under a capital lease which will expire in 2021. The liability under the capital lease is recorded at the present value of the minimum lease payments. The interest rate on the capital lease obligation is approximately 6% at June 30, 2016 and 2015 and is imputed based on the lessor’s implicit rate of return. Amortization expense on equipment acquired under capital lease was $1,653 for the year ended June 30, 2016. Accumulated amortization on leased equipment was $1,653 at June 30, 2016.


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NOTE 4 CAPITAL LEASE OBLIGATIONS (CONTINUED)

Future minimum lease payments under the capital lease are due as follows:

Year Ending June 30, Amount2017 5,752$ 2018 5,752 2019 5,752 2020 5,752 2021 3,835 Total 26,843

Amount Representing Interest (3,481) Present Value of Future Minimum Lease Payments 23,362

Current Portion (4,472)

Long-Term Portion 18,890$

NOTE 5 LEASE COMMITMENTS

Effective June 16, 2004, PCCS entered into a lease with Holdings for the school buildings which expires on December 31, 2028, and is paid directly to Lake Forest Bank and Trust Company in monthly installments equal to the regularly scheduled principal and interest payments required by Holdings bond payable on the property. The lease expense under this agreement is eliminated upon consolidation. See Note 6 for further discussion of the bond payable.

NOTE 6 MORTGAGE/BOND PAYABLE

In August 2011, the Village of Wadsworth, Illinois, issued $9,000,000 of Revenue Refunding Bonds (Prairie Crossing Charter School Project) Series 2011 pursuant to its powers under the Industrial Revenue Building Bond Act, 65 Illinois Compiled Statutes. The Village entered into a bond and loan agreement with the Lake Forest Bank and Trust Company and the Organization dated August 1, 2011. The bonds mature, subject to prior redemption, principal amortization, and acceleration, on September 1, 2038. The bonds are collateralized by substantially all of the Organization’s assets. Under the terms of a related Loan and Covenant Agreement, the Organization is required to maintain a minimum deposit with the bank of $300,000. This requirement is met with a certificate of deposit in the amount of $306,696 and is presented as a deposit required by the loan agreement in the consolidated statements of financial position. The School is also required to maintain a minimum debt service coverage ratio. The School was not in compliance with this covenant at June 30, 2016. The lending institution has provided a waiver.


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NOTE 6 MORTGAGE/BOND PAYABLE (CONTINUED)

The bonds bear variable interest, payable monthly, in arrears. The initial bank purchase mode matured on August 23, 2016. The interest rate during that period represents a tax-exempt, variable rate equal to the bank purchase multiplier times the sum of the London Interbank Offered Bank (LIBOR) rate plus 350 basis points. After the initial bank purchase mode, and subject to written agreement, the Organization may convert the bonds to a bank purchase mode renewal or to a weekly mode or a flexible mode. The interest rate on the bonds is established by a remarketing agent weekly.

The Organization entered into an interest rate swap agreement with Lake Forest Bank and Trust Company dated July 27, 2011 and effective September 15, 2011. The swap agreement matured on September 10, 2016 and results in the Organization paying interest on the bonds at a fixed rate of 3.9%. The agreement requires monthly principal payments on 10th day of each month.

The School entered into the second bank purchase mode on August 24, 2016, and it ends on August 23, 2021, in relation to its outstanding bonds. The interest rate during that period represents a tax-exempt, variable rate equal to the bank purchase multiplier times the sum of the London Interbank Offered Bank (LIBOR) rate plus 350 basis points. The School entered into an interest rate swap agreement with Lake Forest Bank and Trust Company dated September 9, 2016 and effective September 10, 2016 with a fixed rate of 3.354 % for five years. The swap agreement matures on August 23, 2021.

Future principal payments under the loan agreement are as follows:

Year Ending June 30, Amount2017 242,779$ 2018 256,054 2019 264,712 2020 273,663 2021 282,916

Thereafter 6,701,126

Total 8,021,250$

NOTE 7 LINE OF CREDIT

The Organization has a $500,000 line of credit which bears interest at the bank’s prime rate plus 1.00%, but not less than 5.50% (5.50% at June 30, 2016 and 2015). The line is due on January 31, 2018. There were no amounts outstanding at June 30, 2016 and 2015. The lineof credit is collateralized by a general business security agreement and includes several financial covenants.


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NOTE 8 RESTRICTED NET ASSETS

Temporarily restricted net assets consist of the following at June 30:

2016 2015

Sustainable Schoolyard 5,195$ 5,195$ Giving Tree 868 868

Total 6,063$ 6,063$

NOTE 9 RETIREMENT PLANS

Teachers’ Retirement System of the State of Illinois (TRS)

The Organization participates in TRS, which is a cost-sharing, multiple employer defined-benefit pension plan that was created by the Illinois legislature for the benefit of Illinois public school teachers employed outside the city of Chicago. The Illinois Pension Code outlines the benefit provisions of TRS, and amendments to the plan can be made only by legislative action with the governor’s approval. The state of Illinois maintains primary responsibility for the funding of the plan, but contributions from participating employers and members are also required. The TRS board of trustees is responsible for the system’s administration.

TRS members include all active non-annuitants who are employed by a TRS-covered employer to provide services for which teacher certification is required. Active TRS members are required to contribute 9.40% of their creditable earnings. These contributions are submitted to TRS by the employer.

All TRS-covered members and employers are required to contribute to the Teachers’ Health Insurance Security Fund, a separate fund in the state treasury that is not a part of this retirement plan. For the year ended June 30, 2016, TRS-covered employers contributed 0.80% of creditable earnings to the Teacher’s Health Insurance Security Fund and TRS-covered members contributed at a rate of 1.07% of creditable earnings. For the year endedJune 30, 2015, TRS-covered employers contributed 0.76% of creditable earnings to the Teacher’s Health Insurance Security Fund and TRS-covered members contributed at a rate of 1.02% of creditable earnings.

The Organization makes four types of employer contributions directly to TRS:

2.2 Formula Contributions

For the June 30, 2016 and 2015, TRS-covered employers were required to contribute 0.58% of creditable earnings as the employer share of the 2.2 formula change. The contribution for the years ended June 30, 2016 and 2015 was $8,747 and $7,999, respectively.


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NOTE 9 RETIREMENT PLANS (CONTINUED)

Teachers’ Retirement System of the State of Illinois (TRS) (Continued)

Federal and Trust Fund Contributions

When TRS members are paid from federal and trust funds administered by the Organization, there is a statutory requirement of the Organization to pay an additional contribution that is 36% and 33% of salaries paid from those funds for the years endedJune 30, 2016 and 2015, respectively. For the years ended June 30, 2016 and 2015, the Organization paid $7,754 and $7,095 from the federal and trust funds, respectively.

Early Retirement Incentive

The Organization is required to make employer contributions to TRS for members who retired under the 1993-1995 Early Retirement Incentive. For each year of service purchased, members received an equal number of years of age. Employers contributed 20% of the highest salary used in the calculation of final average salary for each year purchased; member contributions were also required. Employer contributions could be made in a lump-sum, over five years in quarterly installments, or under a different schedule approved by the TRS board of trustees. For the years ended June 30, 2016and 2015, the Organization paid no employer contributions under the Early Retirement Incentive.

Early Retirement Option

The Organization is also required to make one-time employer contributions to TRS for members retiring under the Early Retirement Option. The payments vary depending on the age and salary of the member. No member or employer contributions are required if the member has 34 years of service. The maximum employer payment of 100% of the member’s highest salary used in the calculation of final average salary is required if the member is 55 years old. For the years ended June 30, 2016 and 2015, the Organization paid no employer contributions under the Early Retirement Option.

TRS financial information, an explanation of TRS’s benefits, and descriptions of member, employer and state funding requirements can be found in the TRS Comprehensive Annual Financial Report. The report may be obtained by writing to the Teachers’ Retirement System of the state of Illinois, PO Box 19253, 2815 West Washington Street, Springfield, IL 62794-9253.

403(b) and 403(b)(7) Plans

The Organization has two tax deferred annuity plans pursuant to Section 403(b) and 403(b)(7) covering all employees. The plans are funded solely by employee contributions.


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NOTE 10 FAIR VALUE MEASUREMENTS

Accounting principles generally accepted in the United States of America establish a framework for measuring fair value that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are described as follows:

Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Organization has the ability to access.

Level 2 - Inputs to the valuation methodology include:

- quoted prices for similar assets or liabilities in active markets;- quoted prices for identical or similar assets or liabilities in inactive markets;- inputs other than quoted prices that are observable for the asset or liability;- inputs that are derived principally from or corroborated by observable market

data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy.

The fair value of the interest rate swap agreement is estimated by a third party using a model that builds a yield curve from market data for actively traded securities at various times and maturities and takes into account current interest rates and the current credit worthiness of the respective counterparties.


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NOTE 10 FAIR VALUE MEASUREMENTS (CONTINUED)

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as of June 30, 2016:

Total Level 1 Level 2 Level 3

Interest Rate Swap 25,420$ -$ 25,420$ -$

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as of June 30, 2015:

Total Level 1 Level 2 Level 3Interest Rate Swap 128,149$ -$ 128,149$ -$

NOTE 11 SIGNIFICANT CONCENTRATIONS, COMMITMENTS, AND CONTINGENCIES

Accounting principles generally accepted in the United States of America require disclosure of information about current vulnerabilities due to contingencies and certain concentrations.

Concentrations

During the years ended June 30, 2016 and 2015, the Organization received approximately88% of its revenues from state funding.

FDIC Limits

The Organization maintains a large portion of its cash and cash equivalents in one commercial bank. Balances on deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to specific limits. Balances in excess of FDIC limits are uninsured.

NOTE 12 UNCERTAINTY IN INCOME TAX

The Organization is exempt from federal income taxes as provided in Section 501(c)(3) and 170(c)(2)(B) of the Internal Revenue Code (IRC). The Organization, having qualified for exemption under provisions of the IRC, is also exempt from state income taxes.

NOTE 13 SUBSEQUENT EVENTS

Management evaluated subsequent events through October 18, 2016, the date the consolidated financial statements were available to be issued. Events or transactions occurring after June 30, 2016, but prior to October 18, 2016 that provided additional evidence about conditions that existed at June 30, 2016, have been recognized in the consolidated financial statements for the year ended June 30, 2016. Events or transactions that provided evidence about conditions that did not exist at June 30, 2016 but arose before the consolidated financial statements were available to be issued have not been recognized in the consolidated financial statements for the year ended June 30, 2016.

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATING SCHEDULE OF FINANCIAL POSITION

JUNE 30, 2016WITH SUMMARIZED INFORMATION AS OF JUNE 30, 2015

(SEE INDEPENDENT AUDITORS’ REPORT)

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2015PCCS Holdings Eliminations Total Total

ASSETS

CURRENT ASSETSCash and Cash Equivalents 1,389,293$ -$ -$ 1,389,293$ 1,340,631$ Cash Restricted to Investment in Property - 5,946 - 5,946 5,951 Grants Receivable 77,390 - - 77,390 59,566 Due from PCCS - 8,817 (8,817) - - Charter Renewal Fees 22,246 - - 22,246 29,661 Prepaid Assets 4,916 - - 4,916 8,258 Investment in PCCS Holdings, LLC 1,137,732 - (1,137,732) - -

Total Current Assets 2,631,577 14,763 (1,146,549) 1,499,791 1,444,067

DEPOSIT REQUIRED BY LOAN AGREEMENT - 306,696 - 306,696 306,696

PROPERTY AND EQUIPMENT, NET 280,088 8,273,507 - 8,553,595 8,693,969

BOND ISSUANCE COSTS, NET - 589,436 - 589,436 615,988

Total Assets 2,911,665$ 9,184,402$ (1,146,549)$ 10,949,518$ 11,060,720$

2016

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATING SCHEDULE OF FINANCIAL POSITION (CONTINUED)

JUNE 30, 2016WITH SUMMARIZED INFORMATION AS OF JUNE 30, 2015


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2015PCCS Holdings Eliminations Total Total

LIABILITIES AND NET ASSETS

CURRENT LIABILITIESAccounts Payable 113,121$ -$ -$ 113,121$ 58,402$ Accrued Expenses and Other Liabilities 349,444 - - 349,444 246,362 Current Maturities of Bond Payable - 242,779 - 242,779 222,500 Current Maturities of Capital Lease Obligations 4,472 - - 4,472 3,341 Due to Holdings 8,817 - (8,817) - - Unearned Revenue 35,115 - - 35,115 43,320

Total Current Liabilities 510,969 242,779 (8,817) 744,931 573,925

LONG-TERM LIABILITIESInterest Rate Swap - 25,420 - 25,420 128,149 Bond Payable, Less Current Maturities Above - 7,778,471 - 7,778,471 8,021,250 Capital Lease Obligations, Less Current Maturities Above 18,890 - - 18,890 -

Total Long-Term Liabilities 18,890 7,803,891 - 7,822,781 8,149,399

Total Liabilities 529,859 8,046,670 (8,817) 8,567,712 8,723,324

NET ASSETSUnrestricted 2,375,743 - - 2,375,743 2,331,333 Temporarily Restricted 6,063 - - 6,063 6,063 Members’ Equity - 1,137,732 (1,137,732) - -

Total Net Assets 2,381,806 1,137,732 (1,137,732) 2,381,806 2,337,396

Total Liabilities and Net Assets 2,911,665$ 9,184,402$ (1,146,549)$ 10,949,518$ 11,060,720$

2016

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATING SCHEDULE OF ACTIVITIES

YEAR ENDED JUNE 30, 2016WITH SUMMARIZED INFORMATION FOR THE YEAR ENDED JUNE 30, 2015


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2015

PCCS Holdings Eliminations Total TotalCHANGES IN UNRESTRICTED NET ASSETS

Revenues, Gains, and Other Support:General State Aid 4,352,771$ -$ -$ 4,352,771$ 3,798,600$ Contributions 25,368 - - 25,368 25,276 Fundraising 8,683 - - 8,683 9,103 Grants:

State Grants 134,212 - - 134,212 110,953 Federal Special Education 117,217 - - 117,217 86,719 Other 36,258 - - 36,258 34,491

School and Program Fees 369,435 - - 369,435 303,790 Rent Income 17,214 545,360 (545,360) 17,214 17,639 Interest Income 1,466 - - 1,466 953 Investment Expense 28,070 - (28,070) - - Unrealized Gain on Interest Rate Swap - 102,729 - 102,729 94,038 Other Expense (100,190) - - (100,190) (81,562)

Total Revenues, Gains, and Other Support 4,990,504 648,089 (573,430) 5,065,163 4,400,000 Net Assets Released from Restrictions 2,265 - - 2,265 3,792

Total Unrestricted Revenues, Gains, and Other Support 4,992,769 648,089 (573,430) 5,067,428 4,403,792

Expenses:Program Services 3,973,728 588,163 (545,360) 4,016,531 3,551,841 Fundraising 19,220 - - 19,220 13,472 Management and General 955,411 31,856 - 987,267 809,220

Total Expenses 4,948,359 620,019 (545,360) 5,023,018 4,374,533

Increase (Decrease) in Unrestricted Net Assets 44,410 28,070 (28,070) 44,410 29,259

CHANGES IN TEMPORARILY RESTRICTED NET ASSETSGrants and Contributions 2,265 - - 2,265 2,532 Net Assets Released from Restrictions (2,265) - - (2,265) (3,792)

Decrease in Temporarily Restricted Net Assets - - - - (1,260)

CHANGE IN NET ASSETS 44,410 28,070 (28,070) 44,410 27,999

Net Assets - Beginning of Year 2,337,396 1,109,662 (1,109,662) 2,337,396 2,309,397

NET ASSETS - END OF YEAR 2,381,806$ 1,137,732$ (1,137,732)$ 2,381,806$ 2,337,396$

2016

PRAIRIE CROSSING CHARTER SCHOOL AND ITS SUBSIDIARYCONSOLIDATING SCHEDULE OF FUNCTIONAL EXPENSES

YEAR ENDED JUNE 30, 2016WITH SUMMARIZED INFORMATION FOR THE YEAR ENDED JUNE 30, 2015


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2015Program ManagementServices Fundraising and General Total Total

PCCSSalaries 1,944,253$ -$ 553,007$ 2,497,260$ 2,216,581$ Benefits 326,338 - - 326,338 270,567 Payroll Taxes 85,810 - 28,723 114,533 89,070

Subtotal 2,356,401 - 581,730 2,938,131 2,576,218 Accounting Expense - - 34,473 34,473 29,442 Club Expenses 120,481 - - 120,481 62,427 Community Outreach - - 62,415 62,415 56,021 Dues - - 11,579 11,579 7,881 Educational Materials and Supplies 89,101 - - 89,101 48,988 Fundraising - 19,220 - 19,220 13,472 Grants 122,048 - - 122,048 98,570 Hot Lunches and Field Trips 130,865 - - 130,865 134,427 Legal Expense 2,255 - 67,066 69,321 111,083 Liability Insurance 55,284 - 13,821 69,105 69,766 Miscellaneous Expense - - 2,265 2,265 3,433 Other Professional Fees 19,894 - 4,973 24,867 7,747 Office Expense 36,209 - 92,651 128,860 73,273 Out of District Placement - - 52,702 52,702 26,326 Professional Development 38,522 - 9,631 48,153 32,005 Rent Expense 545,360 - - 545,360 543,067 Repairs and Maintenance 57,276 - 14,318 71,594 49,667 Special Education Professional Fees 257,052 - - 257,052 231,892 Transportation 31,235 - - 31,235 15,525 Utilities 32,605 - 3,622 36,227 42,031

Total Expenses 3,894,588 19,220 951,246 4,865,054 4,233,261 Depreciation and Amortization 78,593 - 4,136 82,729 60,971 Interest Expense 547 - 29 576 390

Total PCCS 3,973,728 19,220 955,411 4,948,359 4,294,622

HOLDINGSAccounting Expense - - 900 900 275 Depreciation and Amortization 281,446 - 14,813 296,259 292,136 Interest Expense 306,717 - 16,143 322,860 330,567

Total Holdings 588,163 - 31,856 620,019 622,978

Total Expenses Before Eliminations 4,561,891 19,220 987,267 5,568,378 4,917,600

Total Eliminations (545,360) - - (545,360) (543,067)

Total Expenses 4,016,531$ 19,220$ 987,267$ 5,023,018$ 4,374,533$

2016

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